\"The Wrigley Corporation needs to raise $44 million. The investment banking fir
ID: 2777355 • Letter: #
Question
"The Wrigley Corporation needs to raise $44 million. The investment banking firm of Tinkers, Evers, & Chance will handle the transaction. a. If stock is utilized, 2,300,000 shares will be sold to the public at $20.50 per share. The corporation will receive a net price of $19 per share. What is the percentage underwriting spread per share? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) b. If bonds are utilized, slightly over 43,700 bonds will be sold to the public at $1,009 per bond. The corporation will receive a net price of $994 per bond. What is the percentage of underwriting spread per bond? (Relate the dollar spread to the public price.) (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) c-1. Which alternative has the larger percentage of spread? c-2. Is this the normal relationship between the two types of issues?" Funds needed $44,000,000 a. Number of shares 2,300,000 a. Selling price of stock $20.50 a. Net stock price $19.00 b. Number of bonds 43,700 b. Selling price of bond $1,009.00 b. Net bond price $994.00 Enter answers in the highlighted areas below. Solutions: a. If stock is utilized, 2,300,000 shares will be sold to the public at $20.50 per share. The corporation will receive a net price of $19 per share. What is the percentage underwriting spread per share? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Dollar spread Percentage spread b. If bonds are utilized, slightly over 43,700 bonds will be sold to the public at $1,009 per bond. The corporation will receive a net price of $994 per bond. What is the percentage of underwriting spread per bond? (Relate the dollar spread to the public price.) (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Dollar spread Percentage spread c-1. Which alternative has the larger percentage of spread? c-2. Is this the normal relationship between the two types of issues?
Funds needed $44,000,000 a. Number of shares 2,300,000 a. Selling price of stock $20.50 a. Net stock price $19.00 b. Number of bonds 43,700 b. Selling price of bond $1,009.00 b. Net bond price $994.00 Enter answers in the highlighted areas below. Solutions: a. If stock is utilized, 2,300,000 shares will be sold to the public at $20.50 per share. The corporation will receive a net price of $19 per share. What is the percentage underwriting spread per share? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Dollar spread Percentage spread b. If bonds are utilized, slightly over 43,700 bonds will be sold to the public at $1,009 per bond. The corporation will receive a net price of $994 per bond. What is the percentage of underwriting spread per bond? (Relate the dollar spread to the public price.) (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Dollar spread Percentage spread c-1. Which alternative has the larger percentage of spread? c-2. Is this the normal relationship between the two types of issues?Explanation / Answer
Funds needed
$ 44,000,000
Number of Shares
2,300,000
Selling Price of Stock
$ 20.50
Net Stock Price
$ 19.00
Number of bonds
43,700
Selling Price of bond
$ 1,009.00
Net bond Price
a
If stock is utilized 2,300,000 will be sold to public at $ 20.50 per share. The Corporation will receive a net price of $ 19 per share what is the underwriting spread per share
Dollar Spread
$ 3,450,000
Percentage Spread
7.32%
b
If bonds are utilized slightly over 43,700 bonds will be sold to the public at $ 1009 per bond. The corporation will receive a net price of $ 994 per bond
Dollar Spread
$ 655,500
Percentage spread
1.49%
c-1
Which alternative has the larger percentage of spread?
Equity
c-2
Is this the normal relationship between the two types of issues?
Yes.
This is because of the higher risk associated with equity markets.
Gross Amount of shares sold to public = 2,300,000 * 20.50 = $ 47,150,000
Net amount received bythe company = 2,300,000 * 19 = $ 43,700,000
Underwriter Spread amount = $ 3,450,000
Underwriter spread % terms = 3450000/47150000 * 100 = 7.317 or 7.32% (rounded off)
Gross Amount of bonds sold to public = 43700 * 1009 = $ 44,093,300
Net amount received by the company = 43700 * 994 = $ 43,437,800
Underwriter spread = $ 655,500
Spread in % terms = 655,500/44093300 * 100 = 1.4866% or 1.49% (rounded off)
Funds needed
$ 44,000,000
Number of Shares
2,300,000
Selling Price of Stock
$ 20.50
Net Stock Price
$ 19.00
Number of bonds
43,700
Selling Price of bond
$ 1,009.00
Net bond Price
a
If stock is utilized 2,300,000 will be sold to public at $ 20.50 per share. The Corporation will receive a net price of $ 19 per share what is the underwriting spread per share
Dollar Spread
$ 3,450,000
Percentage Spread
7.32%
b
If bonds are utilized slightly over 43,700 bonds will be sold to the public at $ 1009 per bond. The corporation will receive a net price of $ 994 per bond
Dollar Spread
$ 655,500
Percentage spread
1.49%
c-1
Which alternative has the larger percentage of spread?
Equity
c-2
Is this the normal relationship between the two types of issues?
Yes.
This is because of the higher risk associated with equity markets.
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